International Finance Essay Example | Topics and Well Written Essays - 750 words - 1

International Finance - Essay Example However, there is no guarantee that it will limit the risks of foreign currency exchange. Therefore, losses or gains in the exchange of currency will impact on cash flows through reduced growth in global operations. Exchange rate movements as it causes changes in the value of the local currency of revenues subject to foreign currency. However, if parity in purchasing power is desecrated, risks of exchange rates will affect both multinational firms and other firm with no direct link to international trade activities. This is because some local firms which import capital goods encounter asset pricings affected by exposure to exchange rates in the global capital market (Sinclair, 2005). In that case, cost of goods and services will be subject to original cost of capital and this will have an impact on the cash flows. Firms involved with international trade may overlook the country’s imports and exports in a foreign currency. As a result, this will change the value in assesment to domestic currency’s value (Dechow et al, 1999). This then will affect the pricing of domestic goods and services rendering it subject to international market prices dertemination. Anticipated cash flows of firms can be affected by exchange rates movements as it leads to shift in stock prices and returns. In the case of domestic firms, change in value of currency has an impact on the firms ability to import capital goods. Rise in the value of currency will put the domestic firms at a better position to acquire inputs from international market (Beenhakker, 2001). However, low value of currency makes it difficult to acqure capital goods from foreign countries. In that case, the cash flows to the firms will be subject to the inputs of the firm. Adequate invest of inputs will amount to increased cash flows while decreased cash flow results from low inputs. Acquisition of modern technology is determined by the rate of cash flows of firms. However, exposure exchange rates movements

Acer Case Analysis Study Example | Topics and Well Written Essays - 500 words

Acer Analysis - Case Study Example This is the reason why technology and IT companies have to strive to adapt and innovate constantly to remain alive. Since technology and processors were a significantly newer concepts at the time of multitech’s expansion and it chose to focus on geographical areas where the concept was still fairly alien. They set the market and developed strong holding in these regions, which were ignored by the developed world. Once the company succeeded in these markets and gained a strong foothold, it made use of its expertise and resources to design a complex commercial product that could cater to the needs of the developed world. In emerging motivation strategy, foreign ventures are seen as an eventual step and not as an expansion move. One major factor that asserts its use of emerging motivations is making use of its low cost of production and supportive subsidies in the developing countries like Malaysia and Indonesia to provide cost efficient technology to the developed world, making it a quick success. The main concern of the CEO is whether company’s radical market changing invention, aspire, would actually be a good move or negatively affect the already dwindling profit margins (Harvard Business Review). However, if one studies the innovation strategies that can be adopted by a firm operation on a global scale, aspire would get a green signal for a number of reasons. As mentioned earlier, technology has a short product life cycle thus it is imperative to constantly innovate and update one’s offerings. Transnational innovation model focuses on the development of innovations locally and then offering them globally. By collaboratively working with the subsidiaries the firm is in a better position to accommodate the unique needs of each region and gain an understanding of their capabilities. As Acer’s important growth initiative, the management has to take into account the cost saving aspect which can

The extracts from The Power and the Glory and The Pilgrims Progress Essay Example for Free

The extracts from The Power and the Glory and The Pilgrims Progress Essay Discuss the extracts from The Power and the Glory and The Pilgrims Progress The extract from The Power and the Glory is about the priests last night in prison before his execution. Greene writes about how the priest felt like he had accomplished nothing during his life and feels that through death he will still be a nobody. The extract from The Pilgrims Progress is about the end to Christians journey to heaven. When he gets to the gates Christian and his fellow pilgrim were surrounded by heavenly hosts and accepted into the Kingdom of God for eternity. Greene shows the dark and gloomy side to the life of a priest who has no self worth or any belief in his own spirituality. The priest believes in salvation by works, and he does not think he has done anything in the way of good works to earn his salvation. His dream of becoming a saint is not going to happen as he believes that eternal hell is being prepared for him, rather than eternal life in heaven. The priest is a Catholic priest and they believe that they have to earn their salvation, where as in The Pilgrims Progress Christian receives his salvation right at the begging of the book, at the cross. Then from that point he just has to hold onto it by making right choices and battling through everything the devil throws at him. This is a totally different way of seeing things, and also can have two very different results. Greene has written a very deep piece, there is so many religious thoughts and beliefs, so many feelings of grief, and loss, and total failure. He presents a broken man, who knows all to well his sins, I have been drunk I dont know how many times; there isnt a duty I havent neglected; I have been guilty of pride, lack of charity. He also remembers how people had died for him, and he feels guilty that God hadnt thought fit to send them a saint. The way in which Green has expressed the priest feelings is not just through his words, he does it by describing what is happening elsewhere, he sets the scene totally, and it always intensifies the feelings of the priest. He looked through the bars at the hot moony square. He could see police asleep in their hammocks There was an odd silence everywhere, even in the other cells; it was as if the whole world had tactfully turned away to avoid seeing him die. This extract from Graham Greenes The Power and the Glory is very much in context with the rest of the book, the negativity of the priest and his utter hopelessness follows him throughout the story and ends here with his death. The feeling of regret and of failure are two things that come up time and time again through out the book, and Greene continuously brings up many Catholic beliefs and torments. Hr brings to people attention the pressures that the Catholic people have on them to do as much good in their life as possible so as to earn themselves their salvation. Its all about good deeds, and duty. For the priest, all he wants is to be a saint, to be accepted into eternity by the saint already there. He wants to be someone that people could be proud of, to die for a worthy cause, and to know that his death was not the end. That people would not cringe at his name and comment about his drinking, but to recognise that he stayed when others run, he did not give in like Padre Jose, but stayed true to his people. He wants to be worthy of his death. Bunyan has written this ending in a positive way. Which a contrast to the ending in The Power and the Glory which is negative. Christian has finally reached the end of his story, the gates of the city of Heaven. Bunyan is very descriptive about who meets Christian at the gates, Trumpeters, clothed in white and shining Rayment Christian gives his certificate, which he received back at the beginning of his journey, to the people at the Gate. Christian and his fellow pilgrim both enter into the gates, and as they do they are transfigured, and they had Raiment put on that shone like Gold. Then they were given harps, and crowns and the bells of the City started to chime. Bunyan describes the City shone like the sun, the streets also were paved with Gold, and in them walked many men, with Crowns on their heads, Psalms in their hands, and golden Harps to sing praises with. This is the classic description of what heaven will look like. Bunyan also goes on in this extract to talk about Ignorance, who gets turned away from the Gate as he has no certificate with him because he did not start the path from the beginning and did not see the need to. This touches on such a huge reality, Bunyan has picked up on a matter that many people who think they are set for eternal life in heaven will in fact not be ushered in, but left outside. The language in Bunyan has changed a lot over the years since it was written, as he uses words and spellings that have changed and that are no longer used. Also he even uses two different spellings himself of the same word, Rayment and Raiment pronounced the same, but spelt differently, this shows how unstable the spelling was back when Bunyan wrote this book. Compassed is another word not used too often in the English language these days, we tend to say surrounded. Astwere is a spelling that is no longer used, it has no become, as it were, or as it was. Bunyan also uses odd Graphology, as he capitalises words that should not for any particular reason be capitalised, for exapmple, Brother, Gates, Bells. Dream These are words that I think he wanted to put emphasis on, these where things he wanted people to remember, although apart from that they seem rather random. This extract is in context with the rest of the book. Bunyans language and random capitalisation happens throughout the previous pages of the book as much as it does in the two that the extract is from. The way it has been written is the same as how the rest of the book has been written, the meanings the story line, it all leads up to this one all important ending. The final part of Christians story. This is the aim to which every Christian is longing to get, and Bunyan has written it in such a way that would encourage many more Christians to carry on along their walk with God and reach that final heavenly goal. Which is what I think Bunyan wanted to do with this book.

Investment Appraisal Process: Objective, Inputs And Process

Investment Appraisal Process: Objective, Inputs And Process Introduction Decisions related to investments are one of the most important and vital decisions for any organization. Making investments is the only way to increase, and maximize return on the shareholders wealth. However, taking the right investment decisions is the biggest challenge that management faces. Investment decisions are always characterized by risk and uncertainty. According to Lumby (2004) investment decision defined in simple terms, is one in which organizations make an initial cash outlay, with the aim of receiving, in return, the future cash inflows. Investments can be analyzed from several perspectives, like its suitability according to the companys objective, social cause, environmental concern etc. Yet, for the purpose of investment appraisal, it is analyzed from the point of view of cash flow only. Thus, the basic aim of investment appraisal is to check whether the initial outlay would result in enough future cash inflows, to be considered worthwhile. In order to achieve this objective, companies require certain inputs. These inputs are put through the process of investment appraisal, to reach the final outcome. Inputs Required For Investment Appraisal Investment appraisal in broad terms requires only two inputs – the estimated cash flows, and discount rate. The estimated cash flows includes all the cash outflows starting from the initial stage till much later, and inflows taking place during the lifetime of the project. This gives the final figure, which is positive or negative cash flows i.e. either inflows are more than outflows which is the acceptable case, or outflows are more than inflows which obviously leads to rejection of that project. Calculation of these cash flow figures, involves the treatment of a number of items. Cash Flows And Time Value Of Money For the investment appraisal process as discussed earlier, cash flow estimates are the primary input. Initial outlay is easy to estimate as compared to future cash inflows, and even outflows. This is because current requirements for any project, would be ascertained according to which the required finance, can be obtained. Whereas, in the case of future estimates, all the figures are estimated on the basis of some premise, which is always prone to uncertainty. Once these estimated figures are available, companies calculate these future cash flows, in terms of todays value. This is known as the time value of money, according to which, a pound today is not equivalent to a pound tomorrow. According to the time value of money, the investor needs to be compensated for certain factors. Firstly, the investment made has delayed the current consumption of the investor. Current consumption is preferred over future consumption for which, the investor needs to be compensated. This compensation i s the interest that is expected on the money invested, for that period. The second factor is inflation, the current inflation rate in UK, is 1.8% (for the month of July Bloomberg.com) Thus, what can be bought for one pound today, will be available for 1.018 GBP, the next year. Thus, future estimates must be converted in terms of present value, so as to find out its present worth. In order to compensate the investor for these two factors, the rate of return offered, is called the risk free rate. This is equivalent to the rate offered by reputed government bonds, or bills. Other Inputs There are some other factors which are required to be considered for the calculation of cash flows. The first is depreciation, which does not form a part of cash flows. For the purpose of calculating true cash flows, the precise time when the cash flow has occurred, is needed. However, depreciation does not involve any cash transaction. So, this is not included while calculating the cash flow. The second is working capital. According to Arnold (2008) besides the large and obvious depreciable assets, investment is also made in working capital. It includes the items like cash, debtors, stock which are part of companys assets and creditors which is the part of companys liabilities. Another important factor is interest. Treatment for interest is again, not straight forward. Interest can be viewed from two aspects. Firstly, if the company is employing its own funds. In that case it is losing the interest which it would have earned, by depositing money in the bank. This does not require an y treatment here, because this has been considered as the opportunity cost, and treated accordingly. Secondly, if the organization has borrowed funds from the financial market, then the interest is paid on it, which is a cash expense, and must be included in cash flow calculation. Yet, what is seen in most of the cases is that, organizations use combination of both debt and equity. Now, the same item i.e. interest cannot be treated in two separate ways. As a result, it is considered as an opportunity cost. Besides interest on capital, opportunity cost also includes a number of factors, like a building used in any project, would have earned rent otherwise, which is also the opportunity cost of the project. Other similar factors could be machinery, human resources, and other assets. The last factor is the taxation which also reduces the cash flow, by the amount of tax paid. In this case the notable factor is that debt capital gets the tax shield. However tax is to be paid on equity ca pital, making it costlier. Once all the inputs are gathered there are number of techniques available to evaluate the investment, in order to find out whether it would be profitable or not. Discount Rate Once the cash flow figures are derived for the entire period of the project, there are several methods using which we can perform the task of investment appraisal. There are some methods in which there is no allowance for the time value of money, like payback method, and accounting rate of return (ARR). In such methods, the discount rate is not required. However the more sophisticated and widely used methods use the discounted rate of cash flows like net present value (NPV), and internal rate of return (IRR). What is the discount rate and its components is discussed below. Definition The rate of return used for the purpose of finding the present value of future cash flows, is the discount rate. This rate includes the time value of money. Thus, as discussed above it is the risk free rate, plus risk premium. Risk premium depends upon the risk involved, in any particular project. Risk Free Rate Risk free rate includes the expected inflation rate, and the interest on capital which is treated as the opportunity cost of capital. As Arnold (2008) has mentioned â€Å"The risk free rate (RFR), forms the bedrock for the time value of money. Calculations such as the pure time value, and the expected inflation rate, affect all investments equally†. Risk Premium The discount rate is not the risk free rate. Rather, it is always more that that. The rate which is above the risk free rate is risk premium. Risk is the probability of not receiving the estimated return, owing to the uncertainty in any business. Higher the risk, higher is the return expected, and vice versa. However calculation of risk in itself is a difficult task. There are numerous methodologies available, for evaluating risk. The most famous among these are, sensitivity analysis, scenario analysis, and probability analysis. After getting the cash flows and discount rate, the next step is to evaluate the project. This is to determine whether the project is worth undertaking, or not. For this purpose, there are various methods. Some of the most popular ones, used across the globe, are discussed here. Investment Appraisal Techniques Payback Method This method is used to find out the period in which the future cash inflows would be sufficient, to cover the initial investment. Once this figure is obtained, it is then compared with any arbitrarily chosen time period, set as a threshold by the company. If the payback period is shorter or equal to this chosen time period, then the investment is acceptable else it is rejected. Accounting Rate Of Return It is more popularly known as return on capital employed (ROCE), or return on investment (ROI). The ARR is a ratio of the accounting profit to the investment, in the projects. It is notable that here, accounting profit is used, and not the final cash flow figure. Net Present Value This method uses the discounted cash flows. In this, the present value of outflows is subtracted from the present value of inflows. If the result, known as NPV, comes out to be positive or zero the project is accepted else not. Internal Rate Of Return This method also takes into account, the time value of money. This is used to find out the rate of return, at which net present value of an investment is zero. If this rate is higher or equal than the discount rate, then the project is acceptable else it is rejected. Issues To Be Addressed Research Question How an investment appraisal technique helps companies move in the right direction, regarding investment decisions? Other related questions are: What are the pre-requisites for this? What are the methods applied? What are the challenges faced by an organization? Why The Question Is Important? This holds a lot of importance for the organizations since the sizeable investments made by the companies, have long term consequences. The companys strategic position too, is determined by such large investments made in terms of tangible or intangible assets. It impacts the future cash flows. Thus, in order to ensure that every thing moves efficiently in future with any investment made by the company today, investment appraisal is not only necessary, but also inevitable. Research Objective The main objective of this research is to find out if there is any gap between the theoretical concepts studied and analyzed, and its implementation. In practice, matters are always little different, than what it is taught academically, or found in literature on any subject. However, to what extent there is a level of variance in case of investment appraisal, between theory and practice, is attempted to be determined, in this research. The previous research on investment appraisal discussed in broad terms, about changes in methodologies with time; factors to be considered for appropriate calculation of cash flows; and components of discount rate. Yet, none of these studies have shed much light on its practical application, which is empirically investigated, in this research. In particular, three divisions of investment appraisal – objective, inputs and process, is examined. Introduction In this section research work already done on investment appraisal process and its various other aspects have been studied. It will also reveal some elements which are quite important but still not treated appropriately to achieve effective and unambiguous evaluation of capital investments like inflation and taxation. Companies have limited resources. In order to achieve the best utilization and maximum output from these resources companies require a mechanism to decide or analyze which investments are worth taking and which are not. It is a multifaceted and analytical process and many prior studies on this practice exist. A number of surveys scrutinizing the investment appraisal process have been conducted from time to time. These surveys shed light on the changes in the use of methodologies and other practices, which formed an integral part of investment appraisal. A review of the existing literature reveals that, there have been continuous changes in the techniques used for investment appraisal. Different models and methods have been developed for investment appraisal and risk analysis. Over the period of time these developments have been incorporated into corporate practice. What does this investment appraisal process involve as found in literature analyzed and secondary sources providing quantitative data regarding the same is discussed below. Estimation Of Future Cash Flow Investment appraisal requires detailed cash flow forecasts as inputs for sophisticated evaluation methods which have been discussed above. For an investment decision to be considered as successful, it must add value to the firm. Such a project would surely increase the cash flows of the firm, but how much? At this juncture, the firm confronts the problem of estimating the future cash flow, investment outlay and cash inflows emanating from any new project, and finding out whether it adds value to the firm or not. Considering the case of Alaska pipeline project setup by many oil majors, initially its cost was estimated to be $700 million. The final cost, however, came out to be $7 billion. This shows estimation of project cash flows is one of the most important and critical parts of investment appraisal, because in case these estimates turn out to be unreliable or biased, the project would lead to poor business decisions. There are many variables involved and numerous people participat e in this exercise. Capital outlays are estimated by engineering and product development departments; revenue projections are delivered by the marketing department; and operating costs is aggregate of estimates given by number of departments like production people, cost accountants, purchase managers, personnel executives, tax experts and others (Chandra, 2008: 304). To estimate the possible future values, past events are generally used in order to estimate what possibly could be the future outcome or results for the same, or similar kind of event. Earlier, the most conventional method was to find out the best estimate from the information available. This estimate is generally the single value derived, using the mode or average, or a similar likely outcome. However, evaluations based on the single value estimates, show that the estimated value is certain, with no possible margin of error or variance. As a result, instead of using a single value as the best estimate, a new methodology of using a range of outcomes, is used. These outcomes are based on the probabilities of occurrence or non occurrence of events, which affect the cash flows (Dayananda, 36: 2002). Stages In Cash Flow Estimation According to Dayananda (2002) cash flow estimation comprises of four stages: Forecasting the initial capital outlays and operating cash inflows and outflows. Tax factor, which is an important element to be adjusted against these cash flows. There are certain other variables apart from tax like inflation, opportunity cost and depreciation etc. which need to be checked in order to find out its impact on cash flows. Allocating any further resources in order to improve the accuracy and reliability of the variables which have greatest influence on cash flow estimate. This entire process requires close monitoring and early intervention, when required. Monitoring is required at all stages from data acquisition process to projects implementation (Dayananda, 2002: 37 39 – capital budgeting: financial appraisal of investment projects). Estimating Incremental Cash Flows For Investment Apraisal The fundamental principle for the inclusion of cash flows for the purpose of investment appraisal is to include only the incremental cash flows. This refers to the cash flow incepted after the implementation of the project. The time when the investment is made, is considered as time 0, and the cash flows generated after time 0 constitutes a part of the incremental cash flow. For ascertaining the firms incremental cash flow, it is required to identify the cash flow of the firm in two situations i.e. with the project and without the project. The difference between the two gives the incremental cash flows. In estimating incremental cash flow all incidental effects are also considered. Incidental effects lead to an enhancement in the value of some existing activities, such as a rise in the demand of an existing product. However, incidental effects may also turn out to be negative like product cannibalization i.e. with the introduction of a new product, the sale of some existing products may decline (Arnold, 2008: 99-100; Chandra, 2008: 307-308). Opportunity Costs And Sunk Costs There are also certain aspects which are not apparently detected and need to be treated in the valuation of cost of capital. Opportunity costs and sunk costs are the two types of costs which fall under this category. Opportunity cost is the revenue lost by using the resources forming part of the project, under consideration. These resources might be rented out or sold, or used elsewhere. The sunk cost is the cost which the firm has already incurred, and has no effect on present or future decisions. It is the previous cost which was incurred in the past, and is irrecoverable irrespective of the fact, whether the company accepts the project or not. Furthermore, Rustagi (2005) classified the cash flows associated with a project as original or initial cash outflow, subsequent cash inflows and outflows, and terminal cash flow. Initial Cash Outflows, Subsequent Cash Flows, And Terminal Cash Flows Original or initial cash outflow is the initial investment, occurring at the beginning of the project. This is required to get the project operational. Since the investment cost occurs in the beginning of the project, it is easy to identify the initial cash outflow. It includes the acquisition of assets like machinery, building, technology etc. Along with the cost of assets, other incidental costs must also be considered, like the cost of transportation and installation. Sunk costs and opportunity costs as discussed above are also a part of this. Subsequent cash inflows and outflows are generated after the initial outlay of capital. The investment is expected to generate a series of cash inflows, through the project that has been initiated. These inflows may be the same every year or may vary from one year to another throughout the lifespan of the project. In addition to inflows, capital budgeting decisions also consider the subsequent outflows, that might be required for periodic repairs or maintenance. The third classification is the terminal cash inflows. These are the cash inflows in the last year. Firstly, this would include the scrap value, or the salvage value of the project, which is realizable at the end of the economic life. The second, is the working capital which gets released at the completion of the project. This is again, made available to the firm. Estimation of cash flows as a measure of the cost and benefits of any project, includes these three forms of cash flows, and forms the part of any good technique to evaluate a proposal (Rustagi, 2005: 486 489). In addition to all these factors, cash flows also get affected by the factors which are unlikely to be precisely forecasted, and keeps changing with time, like inflation and taxes. Treatment Of Inflation Inflation has a direct impact on the final outcome of investment appraisals. It affects both the future cash flows, and cost of capital. If inflation is not properly adjusted, the future cash flows are increased, over and above, what they would be. For the adjustment of inflation, cash flows have to be either presented in the real terms or money (nominal) terms. Adjustment Of Future Cash Flows In Real And Money Terms In real terms, future cash flows are adjusted in terms of todays current purchasing power, and in money terms cash flow is adjusted, according to the purchasing power, at the time they occur. For applying the correct treatment, companies are required to discount the real cash flows at the real discount rate, and nominal cash flows at nominal discount rates (Drayery and Tayles, 1997). As per Carsberg and Hope (1976) in Arnold and Hatzopoulos (2000) the companies earlier, adjusted for inflation in a rather inappropriate manner. Companies have been either estimating the future cash flows in nominal terms. For the purpose of discounting, they have used real rate of return. Or, they have been estimating the future cash flows in real price terms, but discounted at the money discount rate. There is a significant change in this practice from the last two decades (Arnold and Hatzopoulos, 2000: 12). However in contrast to this, according to the data collected by Drayery and Tayles, 1997 There are still a majority of firms, treating the problem of inflation, incorrectly. The survey was conducted on 195 firms in UK,out of which only 53 or 27% are doing the correct treatment of inflation, with regard to future cash flows (Data attached in appendix 1). Common Mistakes In The Adjustment Of Inflation Thus, we can see that the adjustment for the treatment of inflation, regarding future cash flows and relative discount rates, is not a very uncommon mistake. The most common mistake is using the money discount rate of return for discounting the cash flow estimates, available in terms of real prices. This leads to the undervaluation of NPV, leading to the rejection of the project in some cases, which are worth undertaking, yet, are not. In case of the converse scenario, the result would be overvaluation of the NPV, leading to the failure of projects in the long run. Long term projects, are more prone to this kind of mismatch, because with a longer time period, the variation in cash flows, due to non inclusion of inflation, gets compounded. The cash flows accrued after many years, are valued in current terms, and that turns out to be highly distorted. In case of short term projects, even if inflation has not been included, the distortion in the values of future cash flows, is not very high (Drayery and Tayles, 1997: 3). Treatment Of Taxes Taxes have a direct and considerable impact, on the project viability. For a complete project appraisal, it is important to consider the complete taxation implications, over the cash flows. It is vital for the purpose of investment appraisal, to consider the cash flows after paying taxes, since only these are available to shareholders. There are many important aspects to be considered, regarding taxation. According to Arnold (2008) if the tax liabilities of the firm gets increased due to the project, then the increased tax effects must be incorporated in the analysis, to reach the actual cash flow figure. Secondly, taxes are not generally paid in the same year in which they occur. Companies pay a part of the current years taxes and part of the accrued taxes, which must be considered accordingly. The time factor must be correctly accounted for, while analyzing the cash outflow of taxes. According to Rohrich (2007), due to the investment, tax would arise and NPV must be calculated only after taxation. The implications of taxation would affect the NPV considerably. Firstly with taxes, cash flow will decline and so will the NPV calculated out of that cash flow. Secondly, the capital structure of the project also results in the decline in discount rate, with an increase in gearing ratio. Since the interest on debt is tax deductible, it reduces the cost of capital, and thus leads to fall in the discount rate. Besides these Lumby (1988) has also thrown light on one more important aspect. This is the system of writing down balances, which also provides tax relief on capital expenditure. Thus, the net effect of the taxation could be seen as a decline in NPV, due to a decrease in cash flows, on one hand. On the other hand there was an increase in NPV, due to a decrease in discount rates. Cost Of Capital â€Å"The cost of capital is the rate of return that a company has to offer finance providers to induce them to buy and hold a financial security. This rate is determined by the returns offered on alternative securities with the same risk† (Arnold, 2008: 717). The definition given shows that the rate of return on the capital, is what determines its cost. This rate of return is the discount rate used by the companies. If it is evaluated higher than what actually it should be, then it constrains the investments. Like Arnold (2008) has quoted Michael Haseltine, one time President of the Board of Trade â€Å"Businesses are not investing enough because of their excessive expectations of investment returns† (Arnold, 2008: 717). High Rate Of Return According to Ashford et al. (1988) companies use considerably high discount rate than required, as per the opportunity cost of capital. The reason for this, is the risk premium which companies apply, especially in case of investments made in the projects using new technology. Such projects are considered to be more uncertain, so the discount rate is higher than in other investments (Ashford et al., 1988: 2). Arnold and Hatzopoulos (2000) have quoted Antle and Appen (1985) and Antle and Fellingham (1990) that managers in order to keep a strict control over corporate resources and to reduce the tendency to over invest, keep high discount rates (Arnold and Hatzopoulos, 2000). Similarly according to Dimson and Marsh (1994) in Drury and Tayles (1996) firms in UK use excessively high discount rates, which in turn, have led to the under-investment in UK firms. In USA too, firms use hurdle rates for project evaluation, which are higher than their estimated cost of capital (Drury and Tayles, 1996: 12). Wacc In order to attract investors, companies have to provide returns, higher than the opportunity cost of capital. Companies use a standard means to express their cost of capital, using weighted average cost of capital (WACC). According to Bruner et al (1998) WACC is the method used by most of the companies, advisors and even textbooks, as a method to derive the discount rate used as the cost of capital. Bierman (1993) conducted survey in which 74 Fortune 100 companies participated. The results obtained showed that all the companies use some form of discounting in their capital budgeting, and 93% use a weighted-average cost of capital (Bruner et al, 1998: 2-3). Arnold and Hatzopoulos (2000) presented information given by Westwick and Shohet (1976) stating that companys bank overdraft rate was the most popular method among UK companies for selecting the rate of return to be used for evaluating capital investment. At the same time WACC was in practice by less than 10% of firms. However, th is trend changed substantially over the period of time and according to the data collected by Arnold and Hatzopoulos (2000) more than half of the firms use WACC to calculate the cost of capital (results attached in appendix 2). In addition to this, it is also notable that still significant minority firms use interest rate payable on debt as a measuring tool to calculate the cost of capital (Arnold and Hatzopoulos, 2000: 17). For calculating the WACC a company needs to acquire information about the cost of various sources of capital and their proportions in the capital structure. Considering that we have two sources of finances i.e. equity and debt, here cost of capital is determined by the formula: WACC = KEWE + KDWD Here, KE = cost of equity KD = cost of debt WE = proportion of equity finance to total finance WD = proportion of debt finance to total finance Cost Of Debt Debt entails to more or less fixed payments, so estimating the cost of debt is relatively easy. Arnold (2008) has covered three factors which determine the cost of debt, these are: 1. Existing rate of interest on debt capital. 2. The risk of default by the debtor and recovery rate or chances in case of default. 3. Benefit derived from debt capital due to the tax shield. Cost Of Equity While the estimation of cost of debt is easy, the cost of equity is rather difficult to estimate. This is due to the fact that companies do not have any commitment towards the shareholders to pay dividends. However, companies have been reaching some reasonably good estimates of the cost of equity using some prevalent methodologies like Capital asset pricing model. Although, some firms mention other models as well like arbitrage pricing theory but these are in small proportion. Another model which was most influential in 1960s was Gordon growth model. However, there was a problem of obtaining a reliable estimate of future growth rate of dividends in this model. This was obtained objectively using past data which was not considered to be a trustworthy estimate (Arnold, 2008: 726). According to Bruner et al. CAPM is the most popularly used model for estimating the cost of equity. In a wide survey conducted by Trahan and Gitman (1995) of 84 fortune 500 large firms and best small Forbes 200 companies it was found that 30% of respondents use the capital asset pricing model. Similarly, in a survey conducted in Australia, CAPM is the most commonly used method in estimating the cost of equity, with 72% of the companies under survey, using this model (Truong et al., 2006: 3). In contrast to this Arnold and Hatzopoulos (2000) has mentioned views from several sources stating that According to Bruner et al there are theoretical, practical and empirical doubts cast on the most heavily promoted method of calculating the equity component of WACC, that is, the CAPM (Lewellen, 1977; Mullins, 1982; Lowenstein, 1989; Tomkins, 1991; Fama and French, 1992; Rosenberg and Rudd, 1992; Mills et al., 1992; Strong and Xu, 1997; and Adedeji, 1997). The difficulty faced under this model is to determine a particular divisional beta and cost of capital. This problem has been discussed in quite an elaborate manner by Bruner et al. using different beta rates and expected market return. The result produced shows substantial variation in the cost of equity and in turn had a great variation on cost of capital (result attached in appendix 3). To conclude, what can be seen is the result drawn out of study on the corporate cost of capital and the return on corporate investment. This shows average corporate investment produced returns that exceed the cost of capital. This is analyzed for the period of 1950-96, the real cost of capital for non-financial firms is high, 5.95 percent. The real return on cost is higher, 7.38 percent as a result on average investment seems to be profitable (Fama and French, 1999). Analysing The Level Of Usage Of Appraisal Techniques Since decades companies have been in continuous search of reliable investment appraisal techniques. These techniques helps to rank the multiple competing projects on the basis of benefits that can be derived out of each one as against the costs incurred over the same. Conventional Methods The first analysis studied here is the survey conducted by Arnold and Hatzopoulos in the year 1997. The survey examines the level of usage of four main conventional appraisal techniques – payback method, accounting rate of return (ARR), internal rate of return (IRR) and net present value (NPV). 300 companies are surveyed which are ranked in the Times 1000 companies according to capital employed (results attached in appendix 4). This survey is also compared with two previous surveys one is by Pike covering the period from 1975 to 1992; and Alkaraan and Northcott for the year 2002. These are chosen for comparison because of similar characteristics in all the three surveys. According to the results, it is quite clear that payback method has been the most widely used technique till early 1990s as compared to discounted cash flow methods – IRR and NPV. However, thereafter rise in the usage of NPV can be seen and as for now it became the most popular appraisal technique. Yet, this was not at the expense of a decline in the usage of the payback method. Even payb

The Assassin- Creative Writing Essay -- Creative Writing Essay

It was almost 6 o’clock and the night was drawing closer. Waiting patiently for the return of his prey, he lay with his body embedded in the fallen leaves of what looked like an endless procession of hedges. The silence was deafening. He had been there for almost three hours, and only one car had passed by, it was going to be a long night for him. The skies were casting a dark, unwanted shadow over him, as though they knew for what purpose he was present. It had started to rain, its pressure strengthening rapidly. Within minutes buckets of rain belted down hard on the ground, leaving him deeply embedded in the thick garden mud. He struggled to reposition himself, as the slightest of his movements could attract attention to the bush in which he was concealed. His concentration doubled as another set of headlights busted through the trees and peered at him through the rain but again they carried on the road accompanied by the sound of its engine. It must have been a van, he thought, as he could still hear the roar of the engine. He raised his rifle, and took a concentrated look at the house, in order to make an accurate shot. The house was a small detached bungalow in a state of disrepair; belonging to a middle-aged lady, afraid of the outdoors. The curtains were drawn, and the nets were extremely discoloured. Strangulating vines of ivy twisted and turned round the house, clenching it tightly in its possession.Through this tangled mass of plants a shed protruded from the ground, unlike the house the rain highlighted its wooden walls and bounced neatly off its glassed windows but the roof had seen better days and a glance through an... ...er. His body relaxed. She lifted her bag, her position made her a perfect target-just a single bullet. His arm was raised. His finger poised on the trigger, ready to strike. He fired. The shot killed her with a revolting wound to the back of the head. Her body crumpled to the ground. Within minutes her body was drained of blood. She lay there motionless. One push of the trigger, and her world had been snatched from her. I wasted not my valuable minutes and swiftly concealed all indications of my presence. Before taking my leave I took one last look at her. The remnants of her brain poured out of her head endlessly. It was a sight to see. Who would have ever believed that this blood-spattered corpse would make me a million pounds richer? So precious was her life to her, and others, that somebody wanted her dead!

Biography of Wayne Shorter :: Musicians Music Jazz Saxophonists Essays

Biography of Wayne Shorter Wayne Shorter was born on August 25th, 1933 in Newark, New Jersey. His musical introduction came through the clarinet at the age of 16. Shorter attended Arts High School and later graduated from New York University with a major in music education in 1956. It was while in New York that Shorter started to play the saxophone and gained exposure to some of Jazz’s most influential artists. After a two year interruption in the military, Shorter kickstarted his professional career in 1958 with a band led by pianist Horace Silver. The band showcased Shorter’s talents and led to his invitation to join the Maynard Ferguson band and later Art Blakey’s Jazz Messengers. After 4 years with Blakey, the Vee-Jay label endorsed Shorter as one of their lead artists and he released his first three solo albums (Second Genesis, Blues A La Carte, and Wayning Moments). In the 1960s, he continued to win attention from audiences and recorded another 9 albums with Blue Notes label (ch eck album information links). In 1964, Miles Davis invited Wayne to play with his quintet composed of Herbie Hancock, Ron Carter and Tony Williams. The band was successful in shaping the direction of jazz music during a difficult social time. In 1970, Shorter started his own band, the Weather Report with Joe Zawinul and Miroslav Vitous. This band helped innovate jazz by integrating a rock, classical and jazz forms into a hybrid that would later be called fusion. During the Weather Report years, Shorter won the first of three career grammies. Shorter’s influence has continued through the present day. Last year, at the age of 69, he toured the Wayne Shorter Quartet and showcased his first acoustic album, Footprints Live. Wayne Shorter’s contributions to the Jazz world have spanned his entire 45-year career.

Is Summer Reading Really Necessary? Essay

Towards the end of the School year many students begin to look forward to their 3 month Summer vacation. It’s the time where they can hang out with friends, laugh and catch up with some sleep. One thing students don’t look forward to is an 8 letter word that makes them sough, homework. The Summer Reading in Port Richmond High School requires students to read 2 books and create a journal for each one. Some students believe Summer Reading is necessary while others don’t. School Librarian, Mrs. Makler said â€Å"I believe [Summer Reading] is important [because it will] keep the students mind engaged during the Summer. †   While one student who chose to remain anonymous said â€Å"It’s completely unnecessary, that’s why we have school, it’s my summer vacation, it’s time to relax and vacate. Not time to do homework. † When students were asked if they did their Summer Reading some answers were very surprising while others seemed reasonable. â€Å"[I did my homework] because I had no choice and wouldn’t be able to pass the test when they give it in the beginning of the school year† said Aida Sproul from the Leader Ship house. Aisha E. Carson, a Gateway senior also replied saying â€Å"No, I had a summer job and I was more focused on that [and less] on books that were uninteresting. †Ã‚  There were few students who simply said they â€Å"had no money†. However when reminded that the libraries were open every day and money wasn’t a problem. One student replied â€Å"If I have no money for a book, what makes you think I have money for a metro card† while another replied â€Å"I was too lazy some days and too busy on the days I wasn’t†Whether financial or not there were other excuse to why students didn’t read their books. I only read a part of the book because it didn’t interest me at all. I read the first few pages and closed the book† said a Gateway senior. Another student mentioned how they disliked the Summer Reading because they wanted to read a book that they wanted to. Quadry Bellow and Aisha Carson seem to agree with a similar concept that the gateway senior has. What if students chose the books that they wanted to read? Will more students do their reading or will the statistics remain the same it is now? Quadry Bellow believes â€Å"If [students] picked their own books they would actually read it. It would make it fun† and that he believed â€Å"education and fun go great together. † Aisha E. Carson also agrees by saying â€Å"Yes, students will probably read their books but it can’t be anything immature or stupid. A student from the TV and Media arts department seems to disagree with both their opinions. She believes â€Å"If student’s picked their own books then that’s about 30 to 50 different books that are being read in each English class. How will teachers possibly give out their tests? The kids who chose to not do [their summer reading] obviously don’t care about their grades. If they don’t want to read the book, they should at least go to Sparknotes or Cliffnotes and make some type of effort toward their grade. †    Now while some students may not want to hear it Summer Reading is indeed necessary and very important. Like the students said before, when you do your Summer Reading it will start you off with a great grade in your English class and increase your reading abilities. Based on a three year study at the Dominican University graduate school of Library and Information studies, students who took part in their Summer Reading program improved their reading skills. Also a New York University sociology professor, who spent two years following 3,000 sixth and seventh graders in Atlanta Public Schools, found that children who read at least six books during the summer maintained or improved their reading skills opposed to students who didn’t do any. She also found that students who spent time reading were able to increase vocabulary test scores. Now you may not be 6th or 7th graders but the statistics still apply to you. According to the John Hopkins Center for Summer Learning, statistics show that students can lose up to 25 percent of their summer reading. The Learning center also mentions how â€Å"A conservative estimate of lost instructional time is approximately two months or roughly 22 percent of the school year†¦ It’s common for teachers to spend at least a month re-teaching material that students have forgotten over the summer. That month of re-teaching eliminates a month that could have been spent on teaching new information and skills. †   It’s also been said that students who read actively develop higher-order thinking skills, literary skills, life-long reading habits that continue to their adulthoods, and they engage in class discussions more often. Summer reading is very important and crucial. It would be wise to complete your summer reading so your grades can be the highest it can. Read a chapter a day and it will be over before you know it. | |